Pot Can Be Insured Under Commercial Property Policies, Court Rules

Green Earth Wellness Center in Colorado Springs. Additional images and more below.
Green Earth Wellness Center in Colorado Springs. Additional images and more below.
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Can an insurance company refuse to pay for damage to marijuana at a legal pot shop because cannabis remains illegal at the federal level?

That was among the many questions asked in a lawsuit filed by Green Earth Wellness Center, a Colorado Springs medical marijuana business, against its insurer, Atain Specialty Insurance Company.

Now, in a ruling on view below, a federal judge with the United States District Court for the District of Colorado has weighed in on the side of Green Earth Wellness and ordered that many of its allegations proceed to trial.

The case dates back to June 2012, when Green Earth Wellness maintained that smoke and ash from the Waldo Canyon wildfire in the Springs area overwhelmed its ventilation system and caused injury to its plants.

A graphic posted by Green Earth Wellness Center in June 2012, around the time of the Waldo Canyon fire.
A graphic posted by Green Earth Wellness Center in June 2012, around the time of the Waldo Canyon fire.
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Atain snubbed Green Earth Wellness's claim related to the damage, as well as one the following year, after thieves broke in through the center's roof and stole some plants.

A series of legal maneuvers on both sides followed, with the opposing parties citing precedents on a slew of fronts. But U.S. District Judge Marcia Krieger laid out two of the main questions like so:

(i) “Whether, in light of [Colorado’s Medical Marijuana Act], federal law, and federal public Policy, it is legal for Atain to pay for damages to marijuana plants and products, and if so, whether the Court can
order Atain to pay for these damages”; and

(ii) “Whether, in light of [those same authorities], the Policy’s Contraband Exclusion removes Green Earth’s marijuana plants and marijuana material from the Policy’s coverage."

A photo from the Green Earth Wellness Center Facebook page.EXPAND
A photo from the Green Earth Wellness Center Facebook page.
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Had Krieger defined marijuana as contraband, no one would have been surprised. She is, after all, a federal judge. But she chose to navigate a different path.

Here's a key passage from the document:

The Court accepts Atain’s observation that the possession of marijuana for distribution purposes continues to constitute a federal crime.... But, as the parties are well aware, the nominal federal prohibition against possession of marijuana conceals a far more nuanced (and perhaps even erratic) expression of federal Policy. The Court will not attempt to explain nor summarize, the conflicting signals that the federal government has given regarding marijuana regulation and enforcement since 2009. It is sufficient to recognize that as early as 2009, and again mere weeks before Atain formally denied Green Earth’s claim from the Waldo Canyon fire, federal authorities had made public statements that reflected an ambivalence towards enforcement of the Controlled Substances Act in circumstances where a person or entity’s possession and distribution of marijuana was consistent with well-regulated state law. Other than pointing to federal criminal statutes, Attain offers no evidence that the application of existing federal public policy statements would be expected to result in criminal enforcement against Green Earth for possession or distribution of medical marijuana, nor does Atain assert that Green Earth’s operations were somehow in violation of Colorado law. In short, the Policy’s “Contraband” exclusion is rendered ambiguous by the difference between the federal government’s de jure and de facto public policies regarding state-regulated medical marijuana.

Krieger's conclusion: "Green Earth’s breach of contract, bad faith, and delayed payment claims will proceed to trial with regard to Green Earth’s claim for benefits arising out of damage to harvested marijuana buds and flowers allegedly caused by the Waldo Canyon fire." A conference between the parties has been scheduled for early May.

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Will the ruling have far-reaching effects when it comes to marijuana in Colorado and insurance that might go beyond businesses?

That's unclear — but if it's allowed to stand, the judgment blows a hole in the idea that insurance companies can routinely refuse to pay off cannabis claims simply because what's legal here remains illicit according to the U.S. government.

Continue to see Krieger's ruling.


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